"either that it has a production bottle-neck and cannot supply all the necessary equipment within the time-frame specified by its client, or that it is in a financing impasse - and reluctant to increase its exposure to Mobilcom
Mobilcom's UMTS network moves sends warning signals
By Ouida Taaffe, Total Telecom
17 January 2001
Mobilcom has announced that it is considering Siemens, Nokia and Alcatel as further suppliers of its UMTS network equipment. It has had an agreement with Ericsson as sole supplier - and funder of the network build-out - since October 2000.
The reason given by Mobilcom was its desire to get the UMTS network up and running as quickly as possible. It aims to launch services in the middle of next year. Further, work with two network providers is said to offer "a greater degree of security across the board when planning."
What the latter statement may mean is, of course, open to speculation. Mobilcom, which is 28% owned by France Telecom, would obviously be well advised to begin making returns on its UMTS investments as soon as possible. However, just this cost pressure would suggest that Mobilcom may be looking for more than fast access to kit in talking to Siemens, Nokia and Alcatel.
Equally, the fact that Ericsson is, apparently, not seeking to prevent its competitors working with Mobilcom could indicate either that it has a production bottle-neck and cannot supply all the necessary equipment within the time-frame specified by its client, or that it is in a financing impasse - and reluctant to increase its exposure to Mobilcom.
Ericsson would not discuss the way in which it decides customer supply pecking order. It did stress that it is not "looking at bottlenecks," even though it has the lion's share of the UMTS equipment market with a total of 22 contracts out of 33 awarded world-wide. (Among the companies for which it will provide equipment are NTT DoCoMo, Japan Telecom and Vodafone). The turnkey deal with Mobilcom was for a value of US$1.35 billion and contained penalty clauses should the network not be up and running by the middle of 2002.
What speaks for potential financial conflict is the fact that all vendors have become rather less generous in their finance provision. When the initial contract was signed between Mobilcom and Ericsson, the cost of building out the network was to be carried by the vendor - i.e. Ericsson. Now, where once, certainly in the case of a start-up, such financing could have covered all of the equipment cost and also included some working capital, it has become much less lavish. This is partly because banks are reluctant to take on extra telecoms exposure - vendors can find that within project finance deals they carry the risk with other cash only becoming available once certain milestones have been reached - and partly because many already have heavy exposure. Figures ranging from US$1 billion for Ericsson up to US$8 billion for Lucent have been named in the industry.
The squeeze on vendor finance is not the only factor that speaks for pecuniary pressure on Mobilcom. The hiccups encountered in syndicating out the E4.7 billion loan to Mobilcom to cover the cost of the UMTS license - despite the background presence of France Telecom - also supports this. (The facility was organised by Merrill Lynch, Deutsche Bank, Societe Generale and ABN Amro). Although the loan was sold down successfully, it is known that some banks were not interested in the deal.
Mobilcom reports that it has a 22% share of the German mobile market and also that it is fully integrated into France Telecom's mobile strategy. It is certainly France Telecom's bridgehead beyond the Rhine, bringing a well-known brand and energetic management.
The CFO of Orange recently mentioned that the French company intended to make use of Mobilcom's CEO Gerhard Schmid's "entrepreneurial skills elsewhere" within France Telecom. This is, obviously, a slightly gnomic utterance that lends itself to speculation. However, it is tempting to wonder whether the apparent pressure at Mobilcom, both to get 3G revenues flowing, and to fund the necessary build-out, might not have further ramifications.
The obvious candidate for providing funding for Mobilcom is France Telecom, which has an option on the majority of the company from 2003. Those in the market did not seem to consider it likely in the near term - France Telecom may have other, and more pressing, fish to fry. Apart from that, Gerhard Schmid really is highly entrepreneurial and could have several marketing cards up his sleeve. However, it is still interesting to wonder how Mobilcom will fight its financial corner in the coming months. |
